1. You should never have to resort to "letting" your stash get bud rot or mold. You should be using large glass jars with the screw lids, and filling them up about 2/3 of the way with bud, loosely. Everyday, you should unscrew the lids for about 15 minutes, and take out the weed and put it back in (or shake the jar). If you can't do this, you can leave your weed in the jars with the lid off which should dry them faster. It's best to do this in cool dry places, and weed is always best kept in the dark. (If however your grow is outside and the budrot and mold is happening in the growing stage, then yes, all weed contaminated is considered garbage and poisonous.)
2. Mealy bugs would only happen in the growing stage. Again, a cooler/dry climate will keep these pests away. If your outdoor and can't control the climate, go here to learn how to control mealybugs that are robbing your plant of nutrients:
http://www.ehow.com/how_6935_control-mealybugs.html If you can stop them before they start, you'll be left with a lot more extra weed.
3. Although some claim water curing can increase potency, it is more or less just another way to 'flush' your plant clean of any left over chemicals, nutrients, chlorophyll, and pests. So yes, water curing can help get rid of the mealybugs. Water curing also takes away the great smell of your weed, but cleans the plant up a bit more for a smoother smoke.
I have read some places that state that water curing can help get rid of mold but I don't believe it. Mold is terrible for a human.
My 0.02$
